Ed Miliband backs 'mansion tax' to fund 10p tax rate return

A Labour government would seek to re-introduce the 10p starting rate of tax scrapped by Gordon Brown in 2008, Ed Miliband has announced in a speech.

Mr Miliband said it was a "very bad mistake" to get rid of it and the move would send a "clear signal" his party was on the "side of working people".

The move, worth about £2 a week for people, would be funded by a "mansion tax" on £2m properties, he said.

But No 10 said it was a "stunning admission of economic incompetence".

The decision to scrap the 10p tax band - announced in the 2007 Budget as part of a package which also saw the basic rate of tax reduced from 22p to 20p - was highly controversial.

Despite measures to compensate those affected, critics said up to 500,000 people were left worse off.

Mr Miliband said the move was "wrong" as the 10p tax rate made a difference to people on low incomes and increased incentives to work.

He said he was "determined to put it right" by reinstating the 10p rate after the next election and urged the government to consider doing it at next month's Budget, describing it as the "progressive choice".

'Fairer taxes'

"We would put right a mistake made by Gordon Brown and the last Labour government," he said.

"We would use the money raised by a mansion tax to reintroduce a lower 10 pence starting rate of tax, with the size of the band depending on the amount raised. This would benefit 25 million basic rate taxpayers."

HOW THE 10p RATE WORKED

Most people have a chunk of their income which is tax free - known as the personal allowance, In 2007, this was worth £5,225 and has since risen to £8,105.

Before April 2008, everyone paid 10p on the next £2,230 of their income, only rising to 22p above this level.

But after the 10p tax band was axed, everyone paid 20p on their earnings above the personal allowance until they hit the higher rate 40% band

In 2012-3, the 20% rate applies to the first £34,370 of income above the personal allowance

Labour has previously indicated it would only set out tax and spending commitments in the run-up to the next election - scheduled in 2015 - and Mr Miliband made it clear that he would not commit to put any specific policies in its manifesto at this stage.

But Mr Miliband said the 10p pledge would send a clear message about Labour's commitment "to a fairer tax system and improving the living standards of working people" as well as showing the party is "moving on from the past".

Shadow chancellor Ed Balls said both he and Ed Miliband had raised objections to the 10p move when they were members of the cabinet at the time.

Asked on the Daily Politics whether it was a firm manifesto commitment, Mr Balls said they could not write their manifesto now, but the changes were something "we want to do... intend to do... plan to do" if the party gets into power after the next election.

The idea of a mansion tax was first proposed by the Lib Dems before the last election although the Conservatives oppose the move and the policy was not adopted by the coalition government.

Mr Balls said there were about 70,000 homes currently worth more than £2m - half of which were second homes - and a tax could raise an estimated £2bn.

He said the detail "had to be got right" but he would be willing to talk to the Lib Dems who he suggested were "still keen" on the idea.

In the speech, Mr Miliband also repeated his support for a temporary cut in VAT to boost economic growth - and called for action on train fares, "unfair" bank charges and capping interest on payday loans.

'Never so good'

Criticising the government's economic policy as a "race to the bottom in wages and skills", he accused the Conservatives and Lib Dems of rewarding those at the top while "squeezing" everyone else.

Speaking in Bedford, where in 1957 Conservative Prime Minister Harold Macmillan famously said Britons had "never had it so good", the Labour leader said that falling wages and rising prices mean many now feel "they will never have it so good again".

"People in Britain are putting in the hours - doing the shifts - as never before. But something has changed in the last few years.

"There's less chance of promotion, less chance of a pay rise, and at the same time, prices just go up and up and up: petrol for the car, tickets for the train, childcare for the kids, deposits for a first home.

"The 'squeezed middle' has never been so squeezed - and it looks like it will be that for years to come."

He criticised the government's decision to scrap the 50p tax rate for those earning over £150,000 from April 2013, saying "we can't succeed as a country just by hoping wealth will trickle down from those at the top to everyone else".

'Labour's mess'

A Downing Street spokesman said Labour's change of tack on the 10p rate was "a stunning admission of economic incompetence" and the coalition had helped low earners by substantially increasing the personal allowance - the level at which people start to pay tax - to £9,205 in April.

"The losers from Labour's 10p tax fiasco have become winners under this government," he said.

He also warned that a mansion tax "would mean government snoopers in every home to revalue your house for council tax, meaning council tax rises for anyone who's improved their home in the past 20 years".

Lib Dem Treasury Secretary Danny Alexander said Labour were "late to the party" on the need to reduce the tax burden on the lowest paid.

"After thirteen years in government, the only action Ed Balls took was to raise the amount of tax those on low incomes paid by abolishing the 10p rate. It was the biggest tax mistake they ever made and it has taken them until now to realise their error."